Thursday, December 30, 2010

"Climate change is a complex, multi-year challenge for our region. It is a wake-up call to a system in decline"

All I can say is

"I am enjoying the current interglacial period, which is overdue to end. Don't you think we are going to need all the warming we can get?"

(By the way, note the effortless slide into Marxism implied in the BC position. If the science is settled, for something that hasn't actually happened yet, why is the policy response based on a philosophy which has been proven an utter failure?")

Monday, December 20, 2010

Sunday, December 19, 2010

If you spend some time learning the lessons of markets, you begin to appreciate the simple wisdom of well-worn phrases like "The Trend is Your Friend."

Whether your approach is technical (what is everyone else doing?) or fundamental (what should this investment be worth if people came to their senses?), there is value in identifying trends and following them until evidence comes in that they have reversed themselves.

Trading out of a stock on its way up, or selling it at the same price on its way down, will make you the same amount of money. Imagining that you can call the turning point consistently is mostly self-delusion. Get on board with the big trends, and ride them until after they turn.

So what are we to make of this trend? The ratio between the price of gold and the value of bonds has been trending relentlessly in favor of gold since before the beginning of this century. The fine print, which is readable at the link but perhaps not on my embedded chart, says the market is anticipating inflation, as evidenced by the steeply rising trend.

Tuesday, June 08, 2010

Monday, June 07, 2010

Playing the markets is not an easy occupation. One normally thinks that it involves buying at the bottom and selling at the top. But in fact, one must make a new decision every trading day. We had a good illustration of this on Friday, June 4 when gold plunged sharply in the morning, and at the same time the dollar broke out of a small triangle to the upside. Since the dollar often moves opposite to gold, this was a bearish signal for gold. A year’s trading, then requires 250 decisions. A decade’s trading requires 2,500 decisions. Fortunately, to make money we do not need to get all of them right. A good majority will suffice.

(Click on images to enlarge)

Above is a daily basis chart of the U.S. dollar (candlestick) showing Friday’s breakout to the upside confirmed by a high volume day. With gold plunging Friday morning and the dollar breaking out upside, it was a scary moment for gold bugs. Fortunately, gold rallied strongly in the afternoon. It made up all the morning’s losses and put on a solid gain. Indeed, GLD (the gold trading instrument which has the latest close) completed a bullish engulfing pattern, a candlestick signal predicting higher prices.

It seems that the markets are saying that the old scenario of gold moving opposite to the dollar (and with the euro), which dominated much of the last decade, has changed. Now the scenario is that all paper money is collapsing against gold. And for the past 4 months, the dollar’s rise against the euro (and other currencies) has been accompanied by a nice gain in gold.

This illustrates the importance of perspective in trading the markets. All of a sudden, as soon as your own money is at risk, everything looks different. When you were paper trading, you were calm and rational. But now your perspective has collapsed. “Honey, could I have the paper? I need to see what my stock did today.” An hour now feels like a week, and waiting for the end of the day seems like eternity. With your perspective out of whack, your judgement follows, and soon your paper trading profits turn to real losses. (This, by the way, is why I do not recommend paper trading. Instead I recommend trading with modest amounts of money. That will give you the sense of what speculation is really like, and you will learn to make sound judgements in difficult circumstances.)

And yet, the long term trend is so much easier to play than the short. Look at the trend in this gold bull market. Surely this trend has been our friend. All commodity markets, by the way, are not like this. Each has its own peculiarities, which must be learned by experience. But gold is a good chart commodity. It is produced all over the world, and it is purchased all over the world. Many people, each day, are buying it and selling it. That, of course, is what technical patterns are intended to comprehend, how the average person thinks and what he will do.

The average person, as I have noted, commits the fallacy of the fair price. He believes the teaching of Thomas Aquinas that there is a fair price for every good and that a good ought to sell for its fair price. He does not understand the teaching of Adam Smith that any price agreed upon between buyer and seller is fair, and therefore the crucial determinant of price is supply and demand.

Let us say that our average fellow makes the mistake of selling gold on Feb. 5, at $1,050. “Oh, did that hurt.” He wishes he had not made that move. Well, the answer seems simple enough. If you regret selling, then go in and buy it back. “Oh, no, I couldn’t do that.”

Why, having regretted his sale, can he not go back in and buy? This puts him long of gold again and corrects his mistake. But he cannot buy here at $1,220 because the fair price for gold is $1,050, and he would be overpaying by $170 (he thinks). In short, because Thomas Aquinas did not tell him how to calculate the fair price, he confuses the fair price with the price that is in his mind. It could be the price he is used to because the good has been trading there for a long time. It could be a high or low point on a chart that stands out and comes to people’s attention. It could be a price with a great deal of volume. And, very frequently, it is the price at which he sold (or bought).

Therefore, if the price of gold did get back down to $1,050, our average fellow would rush to buy it because it was now back down to its fair price. And since $1,050 stands out on the charts, many other people would rush to buy at the same time. This buying is called support, and $1,050 is a support level. The corresponding level at which many people will come in to sell is called resistance.

Once we understand the support and resistance levels, by inference we can figure out the larger trend. In the chart above, gold continues to go to new highs, breaking resistance to do so. Every time resistance is broken the bullish trend is reconfirmed. Look at how many times this has happened over the past 10 years.

The old timers noted this phenomenon many years ago. Most market trends are caused by large-scale forces too big for most traders to comprehend. They wind up assuming that current prices are near the fair price, and they are reluctant to pay more. This reluctance slows down the bull trend, but the fundamental, large scale force keeps tilting the balance to the upside. In effect, the idea of a fair price keeps the market undervalued for a long, long time. The old timers expressed this by saying, “the trend is your friend,” and this is as true today as it was in the early 20th century.

Eventually every trend does reverse. But it continues much more often than it reverses. Gold has continued to new highs 8 times since 2001. It has not reversed to a relative low once. In case after case, in good after good we see these giant bull (or sometimes bear) markets that continue for year after year. As we look back from the vantage point of the future and think back to what we were saying at the beginning of the trend, we are amazed. “I was so certain that gold could never get above $70 in 1974.” “I laughed at Robert Prechter for predicting DJI 3500 in 1982.” “I was absolutely certain that T-bill rates could never get to zero.” But in all of these cases, the trend progressed far beyond almost anyone’s ability to predict. All you could say was, “The trend is my friend.” And this kept you long as the market went up and up.

It is undoubtedly the same with the current bull market in gold. This trend will probably go on much longer than anyone now thinks. Indeed, the best prediction of the grand cycle bull move in gold of the 1970s was made by Jim Dines. When asked, early in the decade, how high gold would go, Dines replied that he did not know how high gold would go or how far stocks would fall, but the two numbers would cross. At the time he made that statement, gold was only a little above $35/oz., and the DJI was close to 1,000. It seemed a fantastic prediction. But on Jan. 21, 1980, gold hit an interday high (on the Comex) of $875/oz., and the DJI closed at 872. That $875, by the way, represented a 25-fold multiple for gold in nominal terms and a 12½ multiple in real terms. Between 1966 and 1982, the DJI fell by about 75% in real terms.

It is, of course, tempting to make the same prediction for this grand cycle trend – that gold and the DJI will cross. I am too much of a scaredy cat to make that prediction here, and I think that I will follow the same policy I followed through the 1970s. Turn bullish as the trend broke to the upside and then follow the trend until it had a clear reversal (which turned out to be the giant one-day reversal of Jan. 21, 1980). At that time, the trend was my friend. Today the trend is still my friend. And the trend can be your friend also.

As the trend in gold was nearing its end, circa 1978-79, the speculative end of the precious metals group (silver, the exploration stocks) came to life and made tremendous gains. I look for that to happen as the present bull trend in gold nears its end. That will be a warning sign. Before it happens, we are safe on the bull side. After it begins, we still have a little time.

Now there are a few people who espouse fundamentals and do not look at the trend. These people are called brokers. They make their money on commissions, not profits. For this they need a lot of customers, and so they follow the policy of telling the average person what he wants to hear and what is useful to them (the paper money theories of Foster and Catchings and Keynes and the fair price theory of Thomas Aquinas). Brokers are friendly, but I do not advise listening to them if you want to make money because they are not even trying to discover economic truth. Furthermore the fundamentals being taught in academia and published in newspapers and magazines are a collection of trash. (Keynes was a deliberate fraud and did not believe Keynesian economics.) To make sense of the markets with this false information is almost impossible.

With the mainstream media focusing on the country's leveling unemployment rate, improving retail sales, and nascent housing recovery, one might think that the US government has successfully navigated the economy through recession and growth has returned. But I will argue that a look under the proverbial hood reveals a very different picture. I believe the data shows that the US economy is badly damaged, and a modern-day depression has begun. In fact, just as World War I was originally called The Great War (and was retroactively renamed after World War II), Peter Schiff has said that one day the world will refer to the 1929-41 era as Great Depression I, and the current period as Great Depression II.

For starters, look at unemployment. During Great Depression I, unemployment broke 25%. If government statistics are taken at face value, the current unemployment rate is 9.9%, but a closer look reveals that the broadest measure of unemployment is currently at 20% - and rising. So, today's numbers are in the same ballpark as the '30s even though the federal government is using unprecedented measures to keep the economy afloat. Remember, in Great Depression I, FDR never ran a deficit nearly as large as President Obama's. Moreover, the Federal Reserve of the 1930s still had a gold standard with which to contend, while today's Fed has increased the monetary base with impunity. Yet even with all that intervention, unemployment figures still indicate that we have entered depression territory.

What is demoralizing to an unemployed person is not simply being let go, it is being unable to find a new job for an extended period of time. And this is where Great Depression II really rears its ugly head. According to the US federal government's own data, the median duration of unemployment is now over five months - and rising. This is the highest it's been since the BLS started compiling this statistic in 1965. As workers start to go this long without jobs, they eat into their savings. Eventually - and especially in a country with a savings rate as low as ours and debt as high as ours - they run out of cushion and hit the street. Formerly middle-class people have to make decisions never thought possible: do I eat in a shelter or go hungry in my home?

It's no surprise, then, that about 40 million people - or one out of every eight Americans - are receiving food stamps in Great Depression II. During the height of Great Depression I, the rate was just one out of thirty-five Americans. Even with the stimulus programs, Great Depression II is actually worse on this measure than Great Depression I - and the USDA estimates that the program could grow by another 50%. Soon, out of ten people you know, one may depend on federal assistance for daily survival.

Despite tax credits that have created a rush of purchases this spring, housing is in just as bad shape. During Great Depression I, home prices dropped some 15% from their pre-depression peak (achieved in 1925). In Great Depression II, housing is down at least 30% from the pre-depression peak (achieved in 2005), with some markets down more than 50%.

So, many of the people expected to keep making mortgage payments as they eat tuna fish to stay alive will be paying double their home's resale value. This is a tremendous incentive to walk away, with disastrous consequences for the country's social fabric in these trying times. Empty homes breed crime and vandalism, encouraging more to flee in a negative feedback loop. Moreover, the many 'walkaways' may create a class of Americans with ruined credit - right when many employers have started checking credit scores before hiring.

Even more worrisome, the present drop in home prices is against a backdrop of price inflation. In Great Depression I, our grandparents may have lost value in their home, but everyday goods (milk, diapers, automobiles, etc.) got cheaper at the same time. That made their savings 'cushion' deeper when they needed it most. Today, as home equity (now our main store of savings) declines, prices for consumer goods are rising. It's a tight squeeze indeed.

From jobs to food to the roofs over our heads, the current period of economic turmoil is at least as bad as the First Great Depression, whether or not the financial media wishes to acknowledge it. The main difference is that unlike in the '30s, the US dollar is now the world's fiat reserve currency, so we are able to push our problems overseas for awhile. The plight of the rural Chinese is really our plight - we are living lavishly on the wealth they create. Were they to quit this dastardly arrangement, the full effects of Great Depression II would be felt in America.

By contrast, in Great Depression I, the US was on the gold standard like everyone else, which forced us to live within our means. This, in turn, made it easier to recognize that the economy was in decline and changes had to be made.

Unfortunately, because of the responses of the Administration and the Federal Reserve, which I believe to be deeply misguided, I remain concerned that Great Depression II could develop into something far more devastating than its predecessor, something that other countries in the world have experienced but was thought impossible in the United States: a hyperinflationary depression. As bad as the current downturn has been, inflation would make it immeasurably worse. It would require an honest accounting of the problems we face today to avert the disaster we see coming tomorrow.

Sunday, May 02, 2010

So far in 2010 the FDIC has announced the closure of 64 banks, with seven more being stacked on the pile on April 30. Last year at this time the toll was 32, which in itself was a disturbing number. How disturbing? Banks don't usually fail en masse, and when the economy was enjoying better days it took 5 years to rack up 32 bank failures, from the end of 2003 to the end of 2008.

The acceleration of failures, and the swelling burden on the US taxpayer to bail out the depositors, ought to be disturbing the general populace. One would think that evidence of real hardship that affects everybody in the USA, relentlessly creeping like an oil slick in the Gulf of Mexico, would make it onto the nightly news or a large-circulation daily front page or two. Nope.

At least the LA Times covered it in the business section with the almost-comical closing comment that "depositors' money is not at risk, with the FDIC backed by the government." Hello? This opinion might reassure a failed bank's depositor but surely it should trouble a taxpayer. Billions of dollars are being lost.

There are still two possible outcomes at the macro-economic level. Debt which is not repaid is deflationary. But if the government response to widespread failure of debt is to increase its money supply, debasing its currency, this is inflationary.

Tuesday, April 13, 2010

According to the New York Times, it appears that members of Congress and their staff are suddenly without medical insurance, directly as a result of the Health Care bill that was rushed through in March.

"The law apparently bars members of Congress from the federal employees health program, on the assumption that lawmakers should join many of their constituents in getting coverage through new state-based markets known as insurance exchanges."

But the research service found that this provision was written in an imprecise, confusing way, so it is not clear when it takes effect. Tradition says that the bill took effect when President Obama signed it three weeks ago, while new insurance does not have to be available until 2014.

Sunday, April 11, 2010

According to the Daily Mail, Carlsberg Breweries staff in Copenhagen have walked off the job because management has taken away privileges which included the right of delivery drivers to drink three beers a day outside lunch hour.

Shipments of Carlsberg have been suspended, and the Confederation of Danish Industry has agreed to look into the dispute, along with Trade Union 3F.

Wikipedia reports the following about allowable Blood Alcohol Concentration (BAC) in Denmark: 0.05%, imprisonment if over 0.08%, zero if involved in an accident

Friday, April 09, 2010

She appears to have a background in banking at a level that requires facility with facts, trends, details and analysis. In today's (April 9 2010) post she guides us through an assessment of China's effect on oil prices, Walmart's sales trends, and the likelihood that whatever is happening in Greece will repeat on a grander scale in (much much bigger) Italy within two years.

Then she sums up her concerns like this:

The US has a hard economic - and thus social and political - adaptation ahead of us, and almost all the interests that should have been trying to plan for it have instead been trying to fool people into thinking that we don't.

This, I think, is my deepest concern with Western Civilization. We expect our leaders to tell the truth, our journalists to seek the truth, and our advisors to create strategies for us based on truth. Instead we get global warming alarmism and blandishments as to the state of the economy, to name just two of our current pathologies.

The green movement requires little of its adherents, but it expects the targets of its hostility to remain in business locally paying taxes and attempting appeasement. It slides away from any attempts to connect it with consequences such as malaria deaths from the banning of DDT.

The financial system runs on faith. The whole fractional-reserve banking system requires people to not show up en masse asking for the cash that they left at the bank. Ever.

On this blog I have attempted to point out simple facts, such as the relentless debasement of our currency. One would think that our economic advisors would have information like this to inform their strategies for managing our wealth.

I support Maxed Out Mama's viewpoint. There are destructive trends afoot, and we are not made healthier by our ignorance of them.

Protect yourself, by living within your means, by hedging against financial losses caused by either inflation or deflation, by recognizing that our health care system will increasingly fall short of our collective needs and figuring out how to improve your personal odds, by arming yourself with facts against alarmists of all sorts (even me!), and by figuring out how to be of greater service, however you fit into the world.

Chances are that the average westerner has seen the peak of civilization as we know it. From here, debts become due, unsustainable systems fail, and reality intrudes.

Wednesday, April 07, 2010

It seems to me that Maggie Thatcher's comment that 'the trouble with socialism is that sooner or later you run out of other people's money' is coming true before our eyes.

Arnold Schwartzenegger's economic advisor David Crane writes in the LA Times "Today's unfunded liability is next year's budget cut to important programs."

California sits on a $500 billion pension liability with huge political consequences and, beyond those, fundamental challenges to the viability of the state of California. The mess is worse because California has done what we could imagine every government is doing, hiding the truth of its financial situation so as not to have to take the unpopular steps of actually dealing with it.

Don't think this is just California's problem. From sovereign countries (Iceland, Greece) to average little counties (eg Jefferson in Alabama) and municipalities the schemes of easy money and complex financing are unraveling.

Whether the pipers that lent the money are actually paid or not is an interesting new theme. Iceland won't pay what it owes, China has declared many of its debts inoperative because of the unregulated derivatives behind them and Greece is mulling over its options. So the all-powerful Goldman Sachs of the world are suddenly dependent on government money, the printing of which makes everyone poorer so that GS can be made whole.

When your local firehall closes, and your child's teacher loses her job, and your father-in-law's pension check stops coming, and your income tax refund does not reach you, you may feel a bit grumpy watching your tax money go to bailing out a well-connected financial institution that pays billions in bonuses to the managers that sold all this unmanageable debt in the first place.

This is the reality of US politics: the system is not sustainable and the powers behind it are trying to keep themselves whole financially with other people's money. Depriving individuals of their entitlements creates front page stories of misery with a very short individual half-life but with daily examples. In the back pages and the business sections there are vague allusions to keeping the banking system afloat because it is the lifeblood of the day to day economy, and "too big to fail" has implications for whether there will be food on the grocery store shelves in your neighborhood next week.

What a mess. I still think that restoring the system to some form of balance will bring discomfort and misery on the scale of the 1930s.

Friday, April 02, 2010

Somehow, one instance of this routine public act of Roman torture led to events that changed the world.

Argue theology all you want (preferably not here, but go ahead if you must...) History, Architecture and Music remind us that others have been profoundly moved, for reasons that even cynics like me can not explain.

The Federal Deposit Insurance Corporation has already burned through the funds that it collects through a levy on bank deposits, so the US taxpayer is on the hook to give the depositors back their money.

The Federal Accounting Standards Board is responsible to ensure that the rules of accounting properly value the assets and liabilities of businesses, including banks. Their institutionalized version of wishful thinking has led to a gross overstatement of the value of bank loans, delaying the inevitable and adding to the final reckoning. How gross? 59% was the average across the four most recent failures, according to this source.

In the US, when your unemployment benefits run out, you are no longer officially unemployed. The real level of unemployment is 22% not 10%, according to Shadowstats. The stock market may be at cheerful levels, buoyed by government money and CNBC spin, but the real economy is not.

Why is the stock market at cheerful levels? Well, the Zimbabwe market managed some pretty impressive numbers too. Here is the chart from 2007, when it was the best performing stock market in the world. No one got rich in real terms, but the numbers look impressive...If it can't go on forever, it won't go on forever.

Monday, March 29, 2010

I'm talking about the whole of your investing life, the last 30-40 years of asset price inflation that started with Great Society spending in the 1960s, augmented by the baby boomer effect on consumption, the effect of technologies like cars and mass production and telecommunications, all strapped to a booster rocket of Nixon abandoning the gold standard in 1971.

When, in your life, has your government sustained a surplus? When has your currency increased in purchasing power?These provocative questions were prompted by this provocative article is from a provocative blog by Tim Iacono called The Mess that Greenspan Made. Check it out.

What is considered an average return in the stock market took a jump up after money was decoupled from gold. Few people factor in the effect of inflation on stock indices. Look at the chart above, and eyeball an average for the period from 1880 to 1970. Then do the same from 1970 to now.

Real returns probably should be calculated in terms of something timeless, for example the Dow/Gold ratio. The Dow Jones Industrial Average has its weaknesses, but it is easily recognizable. Right now it takes about 10 ounces of gold to buy one unit of the DJIA.The chart shows the craziness of the gold mania in the late 1970s, and the equal but opposite craziness of the tech bubble in 2000. Those who disparage gold point to its poor performance from its 1979 peak through the subsequent two decades. Those who admire gold simply pick a different time period.

The message of Tim Iacono's article is that the housing bubble and accompanying credit bubble that goosed the financial system from 2000 to 2008 was just the most recent example. Who knows...maybe gold is the next bubble, just as it was in the late 1970s. You will know a bubble is happening when TV shows feature ordinary people buying gold or taking Grandma's old jewelry and flipping it for a huge profit, like the home reno shows that were everywhere three years ago.

Until then, it is probably safe to buy some gold or silver and put it away. When the TV shows start, take a bit of a profit by selling it to the latecomers.

Saturday, March 06, 2010

In a recent column "Farewell to the Era of Panic" he uses the tsunami warnings that arose from the earthquake in Chile to remind us that "Once again the experts and the politicians had ramped up the booga-booga" but this time people rebelled against the panic-mongering, reclaimed their senses, and actually came to the beach to watch what turned out to be a non-event rather than obediently fleeing for the hills.

His column continues:

We're on to them now, you see, these backside-coverers who'd rather be blamed for predicting an all-shrieking Armageddon than for being no-worries relaxed among a crowd of look-at-me urgers.

We're on to the kind of people who last July "leaked" a warning from Victoria's Department of Sustainability and Environment, claiming that the fire season now just ended would probably be worse than last year's Black Saturday one, and had the "greatest potential loss to life and property"?

And last week, very quietly, came yet another muffled admission of a terror that had been similarly oversold.

The good news, federal Health Minister Nicola Roxon brightly announced, was that this nice Government was donating 10 per cent of our swine flu vaccines to Laos and other poor neighbours.

The even better news, which Roxon somehow failed to add, was that we could give away so many vaccines because very few people actually caught the swine flu that one of her own advisers, Prof Raina MacIntyre, last year swore could kill between 10,000 and 20,000 of us.

I'm sure you remember that mega-fear campaign - one of the Big Three that made 2009 so infamous in the already sordid history of the Age of Panic.

Swine flu was hyped as a virus so deadly that cruise ships had to be quarantined, schools closed and families with the sniffles locked in their homes.

"All of humanity is under threat," screamed the World Health Organisation, another United Nations bureaucracy (like the Intergovernmental Panel on Climate Change) that feeds on fear.

Britain's National Institute of Medical Research helpfully put the likely death toll at up to 120 million.

The reality? Swine flu turned out to be one of the mildest forms of flu yet seen. We didn't have 20,000 Australians die, but just 191, most of them people already desperately ill with other serious ailments.

To put that in context, about 3000 Australians die each year with normal flu.

Worldwide, it was the same shamefaced story - not 120 million deaths, but 16,226, according to WHO's own figures.

That's less than half the people who die in a normal flu season in the United States alone.

And what of that global financial crisis that last year was going to wipe out the few of us lucky enough to survive swine flu?

What Prime Minister Kevin Rudd gleefully warned was "the worst financial crisis in our lifetime" turned out to be one of our mildest. In fact, "probably our smallest", as Reserve Bank Governor Glenn Stevens conceded last week.

Which means that what will hurt us most is not the financial crisis, but the insane spending Rudd unleashed to stop it, leaving us not just with electrified ceilings, mountains of useless insulation, overpriced school halls and blown-already cash handouts, but now a deep sink of debt as well.

But let's not forget the third leg of last year's great trifecta of panics: the global warming that was going to dry out the dams of Sydney, Melbourne and Adelaide, turn the Great Barrier Reef white and drown half of Bangladesh.

Instead, as rain returns, the globe refuses to keep warming, the Arctic ice rebuilds, great snows bury North America and Tuvalu refuses to sink into the sea, the only thing rising now is the public's scepticism.

Yes, we're finally coming to our senses. We're finally seeing through the spivs who grow rich and mighty by playing on our fears. We're calling time on this Age of Panic.

Well said, Mr. Bolt. In these times of Single-Issue Fanatics, Sound Bites and Political Correctness, it has been difficult to be a dissenting voice against the hurricane of fear-mongering. But sooner or later the average man in the street will tire of hearing cries of "Wolf! Wolf!" and do exactly the opposite of what his betters are suggesting for him. In Australia, perhaps it is already happening.

Saturday, February 27, 2010

"The city is facing a budget crisis unlike any it has ever experienced … The enormity of our current fiscal crisis forces the City to take swift action now and lay out a financial plan for the future."

Government-as-normal has become impossible to run in LA. Double-digit declines in revenues, untouchable commitments to pensions and policing, 11% unemployment with the attendant municipal services required to carry people through, all these and more combine to provide a premonition of troubles to come in cities that were just trying to keep people happy and well-served even if it meant spending a bit extra to do it.

You probably don't want to own any municipal bonds for US cities. More fundamentally, you may want to think twice about what it will be like to live in one in a few years.

...because a private sector lender can only lose money when rates are 5%.Read Maxed-Out Mama's analysis (scroll down to Feb 24):

So this explains why almost all mortgage origination is going through federal programs.... To write prime mortgages I want 5.9-6%, and I really want it NOW, and no, I'm not swimming in these waters. Also, they have to be prime. I want 10% down, I want it in cash from the borrower, I want a housing inspection and MY appraisal, I want very good credit aside from exigencies, I want employment stability, I want housing stability, I want the borrower to have savings on hand for two months mortgage payments after closing, I want a record of the borrower saving, I want owner occupied, I want total mortgage payments 38% or under, and not out of range with comparable rents, I want mortgage insurance to 80% - in short, I don't want to write any mortgages in this market. I do not approve of screwing borrowers, and why should such a borrower pay me 6% for money when he can get it for 5% on the GSE market? The only ethical thing to do is pack my borrowers a lunch and send them down the road to inflict the losses on the taxpayers. As a taxpayer, I have mixed feelings about that....

The US economy is all just propped up on an eroding foundation of tax revenues. Folks, this can not end well.

Saturday, February 20, 2010

Matt Taibbi writes a colorful and searing account of how Goldman Sachs fleeces its clients and the American taxpayer in the midst of the financial meltdown.

Taibbi likens the period since the crisis began to the Newman/Redford movie The Sting and describes various classic con artist schemes

the Swoop and Squat, where GS gets cash from the beleaguered party that it has lent money to and thereby forces it into a liquidity crisis, and stays whole when that party goes under.

the Dollar Store Scam, where GS dresses up like a conservative commercial bank and is instantly eligible for free money from the Fed which it can then lend back to the government at T bill interest. Borrow for free, lend risk free for interest, all paid for by taxpayers.

the Pig in the Poke, where the crap investments in mortgages get upgraded to investment-grade by virtue of taxpayer backing and some convenient rule-changes by regulators.

the Rumanian Box, where GS is given "billions if not trillions" in loan guarantees, cash and artificial upgrades of its investment ratings, then hangs on to the cash, motivating the federal government to throw even more money at GS in an effort to get them to put the money into circulation through loans. GS hangs on to it all, and pays bonuses because it is making so much and risking/losing nothing.

the Big Mitt, where all the big players are consulted on how to stay whole despite holding the most toxic and worthless loans, at taxpayer expense, and without the taxpayer being aware of the price he will have to pay or the timing of the big new favors being granted. Knowing they would be made whole, the big players bought MORE of the toxic crap, at pennies on the dollar.

the Wire, where (as in The Sting) GS uses its position and the information that comes across its desk in the normal course of business to make bets in the direction that it knows the market will move based on what its largest customers are doing. Push up the price of the oil futures that your big customer will buy, by buying first and selling to him at the higher price. 76% of GS revenue comes from trading; GS uses a flash trading system to act in the market fractions of a second faster than big trades that it knows are coming.

the Reload, where the con gets his victim a second time by telling him he can recoup what was lost in the previous scam. Governments attempting to reinflate a bubble that should never have been encouraged in the first place, and Wall Street acting in its own interests rather than the interests of Main Street, set the stage for the Reload last fall.

Let's end this summary with a quote from Taibbi's article:

Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money.

The Province of Alberta is blessed with natural resources and (by Canadian standards) a relatively free-market attitude towards politics and economics.

In part due to the successful efforts of activist organizations to label Alberta's oil sands as "Dirty Oil" because its development footprint is insufficiently photogenic, the politicians of this province have already implemented carbon taxes and carbon capture & storage (CCS) initiatives in an attempt to create some green credentials for the province. When goofy US jurisdictions move to bar imports of crude derived from the oil sands, Alberta can say "Why? We are already taxing the emissions and are planning to capture and sequester the carbon dioxide. What are YOU doing?"

(As an aside, if anyone tries to tell me the Oil Sands represent Dirty Oil I respond "You are mistaken, it is actually Oily Dirt.")

In the provincial budget that was presented on Feb 9, the Conservative government included $100 million for this year's component of the CCS program, (down from $300 million previously planned) along with some redirection of money so that the burgeoning health care deficits could be covered. The plan remains to spend more than we make.

A new political party on the provincial scene named the Wildrose Alliance has gone public with a critique of the budget that includes scrapping the CCS initiatives altogether.

My half-wise prediction is that in 2010, around the world, when politicians have to make choices about where to slosh politically-tuned subsidies, they will be paralyzed in the area of Carbon Capture, Bio Fuels, Alternative Energy and Climate Change activities. Do they go with what was increasingly popular through the first decade of this century, the green path? Or do they acknowledge that the tide seems to be turning in favor of the skeptics and pragmatists?

Economic reality will prevail in the long run, but it is not hard to imagine some well-meaning politician figuring he can kill two birds with one stone by making CCS a centerpiece of stimulus spending, kind of a 21st Century Hoover Dam project. You could argue from ideology as to whether Hoover Dam was a make-work project or not, but the twin realities of its hydro power and Lake Mead's water management benefits are inarguable. CCS on the other hand involves a lot of real work to achieve climate benefits that are literally not measurable, if indeed they exist at all.

The rock to one side of politicians is that their economies are broke. Alberta is less broke than most jurisdictions, but its spending plans are not sustainable unless oil revenues continue to grow. The hard place on the other side of politicians is the need to get elected. In the past the most reliable way to get elected has been to promise expensive new benefits to enough voters to win the support of the media and a plurality of ballots, while being vague about where the money will come from.

If we are witnessing the rebirth of reality-based consumer attitudes, voters are beginning to see how stupid it is to be spending money we don't have on programs that create no value.

In this scenario CCS will come under increasing taxpayer scrutiny. Personally I think that unless CO2 is being used for tertiary oil recovery, there is no value in capturing, compressing, moving and injecting it. You? Your mileage may vary depending on your ideology.

If you were a politician, which side of this issue would you come down on? Spend money you don't have? Or risk being tarred with the brush of AGW alarmist criticism?

Friday, February 12, 2010

The English are feeling the pinch in relation to recent terrorist threats and have raised their security level from "Miffed" to "Peeved." Soon, though, security levels may be raised yet again to "Irritated" or even "A Bit Cross." The English have not been "A Bit Cross" since the blitz in 1940 when tea supplies all but ran out. Terrorists have been re-categorized from "Tiresome" to a "Bloody Nuisance." The last time the British issued a "Bloody Nuisance" warning level was during the great fire of 1666.

The Scots raised their threat level from "Pissed Off" to "Let's get the Bastards." They don't have any other levels. This is the reason they have been used on the frontline in the British army for the last 300 years.

The French government announced yesterday that it has raised its terror alert level from "Run" to "Hide." The only two higher levels in France are "Collaborate" and "Surrender." The rise was precipitated by a recent fire that destroyed France 's white flag factory, effectively paralysing the country's military capability.

It's not only the French who are on a heightened level of alert. Italy has increased the alert level from "Shout loudly and excitedly" to "Elaborate Military Posturing." One more level remains: "Ineffective Combat Operations."

The Germans also increased their alert state from "Disdainful Arrogance" to "Dress in Uniform and Sing Marching Songs." They also have one higher level: "Invade a Neighbour."

Belgians, on the other hand, are all on holiday as usual, and the only threat they are worried about is NATO pulling out of Brussels.

The Spanish are all excited to see their new submarines ready to deploy. These beautifully designed subs have glass bottoms so the new Spanish navy can get a really good look at the old Spanish navy.

Americans meanwhile are carrying out pre-emptive strikes on all of their allies, just in case.

New Zealand has also raised its security levels – from "baaa" to "BAAAA!" Due to continuing defence cutbacks (the air force being a squadron of spotty teenagers flying paper aeroplanes and the navy some toy boats in the prime minister's bath), New Zealand only has one more level of escalation, which is "I hope Australia will come and rescue us."

Australia, meanwhile, has raised its security level from "No worries" to "She'll be right, mate." Two more escalation levels remain, "Crikey! I think we'll need to cancel the barbie this weekend" and "The barbie is cancelled." So far no situation has ever warranted use of the final escalation level.

Canadians are deeply concerned, but would never say so, lest we offend those who were already planning to blow us up.

Monday, February 01, 2010

Here is a photo, and (unrelated) a possible interpretation of the idea that a terrorist operating on behalf of the religion of peace gets 72 virgins for his troubles.What if an imam told the would-be terrorist that there was good news and bad news regarding the 72 virgins?

The good news is, yes they are there as promised, perfumed, veiled, ready and waiting for you.The bad news is that after you have finished with the first virgin, The Big Guy transforms you, and there you are, perfumed, veiled, ready and waiting for the next blowed-up-good terrorist to arrive. 72 dead terrorists later, you and The Big Guy can call it square.

When Discovery Channel makes the video available I will post it, but I have to comment on what I saw last night.

In a segment (starting at 4:50 of the clip after the ad) we learn how a southern variety of flying squirrel is extending its territory northward towards where a northern variety lives, an earnest researcher explains how "climate change" has led to warmer winters that enable this expansion. Then we see the research team trapping the southerners to implant a tracking chip. Finally we hear that the colony of flying squirrels has to huddle together in their nest because if even one leaves, the rest could freeze to death.

So global warming puts flying squirrels who are leaving their regular territory at greater risk of freezing to death. Makes sense to somebody, I am sure.

Saturday, January 16, 2010

The world does not need more solitaire games for our computers and handhelds. Nonetheless, they exist. If you liked this blog's tips for Spider or Brickbreaker, you might like my tips for Blackberry Texas Hold'em Poker.

First, I am not a poker player, but somehow I have managed to accumulate over $8 million on my Blackberry, playing Hold'em, in the past three months. That qualifies me to teach you nothing reliable about playing real poker, but perhaps something useful about playing on your 'Berry.

I win about 40% of the time that I buy in to a game, and since the payout is about 10-15 times the buyin, the money adds up.

If you play poker for real, you will probably laugh at these tips. Hey, it's a computer game...real people would learn from your habits, but the opponents in the game do not.So you can figure out what beats them, and keep doing it.

Here are some tips, in fairly random order, some dazzlingly obvious.

Call most hands, if no one before you has raised. Think of it as an ante.

Be nimble and ready to fold if the betting gets crazy and you have a weak hand.

Play any hand with a face card in it and a small pot.

Play any pair with a small or medium pot.

Play any suited connecting cards with a small pot.

Most opponents with small pairs bet them aggressively.

When you are head to head with the last opponent, raise every hand and they will usually fold. If they re-raise, be prepared to fold because they hardly ever bluff.

When you are the big stack, bet aggressively and others will fold.

If you do #8 and find yourself to no longer be the big stack, do not panic. You can be cautious and get back into the lead.

Opponents seem blind to the risk of losing to a flush draw. If you have a flush, build your bets through the flop, turn, and river, sizing your large bet on the river to wipe out at least one competitor.

Pay attention to everyone's cards when the hand is over, and look at what people are calling with and betting with.

Always expect face cards in your opponents' hands.

Have fun, have a life.

To enter a large bet, press the T key on your keyboard and the number pad will spring to life. Enter the dollar amount, then press the little pearl twice.

Learn something about your own temperament by thinking about what makes you lose at this game, if indeed you lose at this game. Stubborn? Impetuous? Not smart when drinking? Games can be rehearsals for real life...

The US Federal Deposit Insurance Company publishes the names of banks which are closing, because the FDIC insures the deposits in those banks.

Every Friday it updates a list of closed banks, dating back to 2000. From June 2004 to Feb 2007 not one bank failed. Three failed in 2007, 26 failed in 2008, and 140 failed in 2009. Over 550 banks are now on the FDIC "problem list", meaning they are at risk.

It is a small sample size, just two weeks of information, but already this year four failed banks have made it onto the FDIC list. That is twice the rate of 2009. The US taxpayer is on the hook for FDIC's so-called insurance.

And because of a governance attitude that can best be described as "pretend and extend", troubled banks are in far worse shape (more liabilities, fewer good loans) than they would be if swift action had been taken. In other words, more taxpayer money will be required to fill the crater left by the bank failure.The US economy is not, repeat NOT, sprouting green shoots.

Saturday, January 09, 2010

There is a lot of justifiable hand-wringing over labor productivity and international competitiveness. Economists, who rarely agree on anything, accept the wisdom in producing things where the overall cost is lowest, so that society's scarce resources can be best stewarded.

But wait! Everything that gets made, grown or dug out of the ground requires energy. Can an economy be competitive when others pay less for energy?

And within a jurisdiction, when consumers pay an increased percentage of their incomes for energy, then they have less money left over to consume other things.

Here is a fact: 70% of the US economy depends on consumers. More and more consumers in the US continue to lose their jobs (85,000 more in December alone). Consumers who are employed are working fewer hours. The US consumer is less able to support the economy than she was a year ago. And US industries are closing due to increasing power costs, putting more consumers out of work. This is a death spiral for an economy.

Saturday, January 02, 2010

This time each year I try to set some time aside to recalibrate my sense of purpose and the goals that I imagine will get me there. I've been doing this for a quarter century or so, since before "Seven Habits of Highly Effective People".

I think that too much introspection is as bad as living a completely unexamined life, but with that said there are a few questions that benefit each of us to be able to answer. If I take time to consider them each year, the accumulated responses are pretty useful. If I were to do this every day instead of every year, well, someone ought to slap me upside the head lest I disappear up my own fundamental orifice.

So here are the magic Halfwise questions:

What am I good at?

What do I like to do?

What do others value?

What am I on the road to becoming?

The first three are where I think a person should build his or her vocation. If you like to do it, it won't feel like work. If others value it, they will reward you for doing it. And if you are good at it, your reward will be higher than if you were not.

The fourth is where a person should consider the trajectory of his or her life. It troubles people to be reminded that they are on a road to becoming someone, whether they consider it or not. My habits (good and bad); the people I associate with (likewise), the media and messages that I soak in every day, these all shape and pave the road that leads us to that "someplace else" in the opening quote.

If you are an e-mailing type of person, ask yourself and answer the four questions in an e-mail to yourself. Save that e-mail, reflect on it from time to time, do more of what it indicates you need more of, and then repeat the process next year by editing the e-mail based on what you have learned.